Rules For How To Deduct The Proper Amount

Once you’ve determined the labor charge for each uninsured sub, you need to properly classify the type of work that each sub performs. We discussed in an earlier video how the classification rules for builders can be complicated, especially as concerns the use of the residential carpentry classification. Let’s take a minute to review the use of the residential carpentry code.

Residential Carpentry is an expensive classification code for a builder. For example, in South Carolina, one carrier’s current rate Workers’ Comp rate for Residential Carpentry is $19.51 per $100 of payroll and their rate for interior trim is $11.26 per $100 of payroll. The technical rules published by the National Council On Compensation Insurance which most insurance carriers follow say that all framing, siding, roofing, interior trim, wallboard, and floor installation, when performed by a general contractor at a worksite must come under the residential carpentry class code. Furthermore, the governing classification rule is responsible for dumping inside cleaning and yard debris removal into residential carpentry as well in most cases. This has never made a whole lot of sense to me but these are the rules and the carriers do have the power to enforce them. However, some carriers or self insurance funds follow what I call the common sense rules and will allow a breakout of the less expensive class codes to be used such as interior trim, wallboard, janitorial, and debris removal. You need to be aware of how your carrier handles this situation to properly deduct.

Once you know the proper classification code, you apply the appropriate rate per $100 of labor paid to the uninsured sub The proper rate for each classification code can be obtained in a variety of ways. You can find it on the rate page of your insurance policy which is a page near the front of the policy that breaks out the rates for each classification code. These rates are based on per $100 of labor for Work Comp and per $1,000 of labor for General Liability. I like to convert the General Liability rates to per $100 of labor. Or you can ask your insurance agent to provide a withholding rate sheet that lists the rates for each class code for both Work Comp and General Liability.

Its important to note that the pure rates per $100 or labor may not reflect your true cost of doing business. The reason is because your policy may reflect additional credits and surcharges that are applied after the specific classification code rates. For example, if your Work Comp policy has an experience modification of 1.2, your actual cost will be 20% higher than the classification code rates. You might want to refer to our earlier video entitled Workers’ Compensation Part 2 for a quick review of experience modifications.

Some builders add an administrative hassle surcharge on top of the normal rates in order to offset admin expenses and to provide more incentive for the sub to get his own policy.

And finally, any amounts that you deduct should not be commingled with your operations account. Instead they should be placed in an escrow account and held to make sure that you have funds available to pay your audit bill.